Goldman Sachs Says Investors Skeptical Of Chinese Global Expansion
- Equity investors remain skeptical of Chinese companies expanding their operations overseas, looking closely for sustainable growth rather than rushed entry into foreign markets, according to Goldman Sachs.
- Sluggish consumer demand inside China has pushed many domestic enterprises, including electric vehicle manufacturers, to accelerate their international expansion plans.
- Automaker Geely announced Friday that it plans to enter the Canadian market next year, marking one of the latest high-profile steps by a Chinese company pushing further abroad.
Equity investors remain skeptical of Chinese companies expanding their operations overseas, looking closely for sustainable growth rather than rushed entry into foreign markets, according to Goldman Sachs.
Sluggish consumer demand inside China has pushed many domestic enterprises, including electric vehicle manufacturers, to accelerate their international expansion plans. Goldman Sachs Research published podcast comments Tuesday in which Trina Chen, co-head of Greater China equity research at the investment firm, detailed how the market evaluates these cross-border moves.
Market wants to look for profitable expansions.
Trina Chen, Goldman Sachs Research
Geely Plans Expansion into Canada Next Year
Automaker Geely announced Friday that it plans to enter the Canadian market next year, marking one of the latest high-profile steps by a Chinese company pushing further abroad. This international drive spans multiple industries as domestic firms seek alternatives to slowing growth at home.
A Sept. 14 report authored by Chen and her research team predicted that Chinese companies’ overseas market share will reach 31% by 2035, climbing significantly from around 18%. That analysis encompassed more than 10 sectors, including express delivery, industrial robots, and white goods such as air conditioners.
Higher Profit Margins Abroad Face Involution Risks
Chinese businesses frequently discover higher profit margins in foreign markets than they secure domestically, which allows them to charge lower prices than local competitors. However, Chen noted that investors want assurance that global expansion does not end up with something similar to involution, where the price actually gets killed because of competition.
Involution describes the intense race-to-the-bottom pricing battles within China that national regulators have tried to address in recent years. Alongside these pricing pressures, Chen pointed out that geopolitics and market access restrictions continue to weigh heavily on stock performance.
Emerging Markets Draw Rapid Business Growth
While companies eye the United States and Europe, Goldman Sachs observed that some of the fastest-growing expansions target emerging markets where businesses can pursue areas underserved by existing competitors.